On Thursday the 30th June 2011, the British government will face the biggest outbreak of industrial action since it came to power as civil servants join teachers and lecturers in a major strike over pension reforms.
The Government recently entertained the concept of forcing companies to use the Consumer Prices Index (CPI) to up rate pension schemes as opposed to the Retail Price Index (RPI). The Government have, however, moved away from this position.
Implementing this move would potentially have slowed growth of pension funds and therefore devalued funds.
This did not stop the change being brought about for the State Pension or for Public Sector pension funds.
Steve Webb, the Pensions Minister, had this to say:
The UK government has today brought forward the increase in state pension age to 66 years from 2020 which is a significant six years earlier than previously indicated. Buried in the back of the comprehensive spending review there are also plans to accelerate the increase to 68 years with an option to increase the pension age above and beyond 68 years. So what will this save the UK government in the medium to longer term?
Yesterday's news that the UK government is reducing the amount of money which can be injected into your pension fund in any one year from £255,000 to between £30,000 and £50,000 has caused some consternation in the financial sector. However, many people will be unaware that the UK government currently "invests" around £20 billion a year in individual pension arrangements via the tax relief system.
The future of final salary pension schemes in the UK is today under threat amid confirmation that the UK government will significantly reduce the amount of pension funding allowable under tax relief regulations. While this will hit the higher echelons of the UK business arena many believe that it is effectively a sounding bell for the last rites of final salary pension schemes in the private sector.
The UK government has today announced plans to reduce pension fund tax relief which will have a major impact upon those looking to save for their future. Currently relief is available, at the rate at which individuals pay income tax, on pension fund contributions of up to £255,000 a year. However, the UK government is looking to reduce this level to between £30,000 and £50,000 something which would hit around 500,000 people in the UK.
The UK government has today issued a warning to the middle classes that they should not consider their home as their pension arrangement for the future. Over the last few decades there has been a monumental increase in the cost of property in the UK which has ultimately barred many first time buyers from the market. The UK government is therefore looking to break the cycle of boom and bust and also slow down the boom times for the UK property market so that it keeps more in sync with income levels.
The release of Lord Hutton's public sector pension review has certainly caught the eye of the financial press over the last few days. Despite the fact that unions are adamant that pensions in the public sector should remain as they are the truth is that as they stand at the moment they are untenable going forward. There is no way that UK taxpayers can afford to fund in excess of £10 billion a year in pension fund contributions for those working in the public sector by 2015.
No matter how the government and various political parties attempt to wrap up the issue of public-sector pensions there is no doubt that public sector workers will suffer one way or another because of decisions made by previous governments. While it is easy to place all of the blame at the doorstep of the Labour Party the truth is that previous governments also played their part. But is it right that public sector workers need to suffer because of government decisions in the past?
A number of IFA have stepped forward over the last 24 hours to champion the long-awaited pensions report from Lord Hutton yesterday. A number of pension advisers have been comparing the UK public sector pension system to that of a "Ponzi" scheme where effectively new money is used to pay out existing liabilities leading to larger and larger problems for the future. Whether this comparison is a little unfair is open to debate with but the idea of "robbing Peter to pay Paul" has been mentioned on numerous occasions.
